Prevention of oppression and mismanagement – Company Registration in Coimbatore:

Application to the tribunal for relief in cases of oppression, etc.

Any member of a company who complains that-

 

mismanagement

 

  • The company affairs have been conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; or
  • The change of material, not being a change brought about by, or in the interests of, any creditors which includes debenture holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by any alteration in the manager, board of directors or in the ownership of the company’s shares, or if it has no share capital, in its membership or in any other manner whatsoever, and that by the reason of such change in the membership or in any other manner whatsoever and that by reason of such change, it is likely that all the affairs of the company will be conducted in a prejudicial manner to its interests or its members or any class of members, may apply to the tribunal, which provides such member has the right to apply under section 244, for an order:

The central government, with its opinion the affairs of the company are being conducted in a manner prejudicial to public interest, it may apply to the tribunal for an order.

Power of tribunal: – Mismanagement of a company

mismanagement

Any application which is made under the section 241, the tribunal is of the opinion-

  • Affairs of the company being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company; and
  • Winding up of the company would unfairly prejudice such member or members, the facts would justify the marking of a winding-up order on the ground that it was equitable that the company should be wound up.

The tribunal would bring to an end, the matters complained of and making such order as it thinks fit.

Without prejudice to the generality of the powers under sub-section (1), an order that may under sub-section provides for-

  • The regulation of the conduct of affairs of the company in future;
  • The purchasing of shares or interests of any members of the company by other members thereof by the company;
  • If the purchase of shares by the company as aforesaid, the consequent reduction will be in the share capital.
  • Restrictions on the transfer or allotment of the shares of the company;
  • The termination, setting aside or modification of any agreement, arrived between the managing director and the company, any other director or manager, upon such terms and conditions as may in the opinion of the tribunal, be just and equitable in the circumstances of the case;
  • The termination, setting aside or modification of any agreement between the company and any person other than those referred in clause c:

No such agreement shall be terminated, set aside or modified except the due notice and after obtaining the consent of the party concerned;

mismanagement

  • The setting aside of any transfer, payment, delivery of goods, execution or any other act relating to property made or done by or against the company within a period of three months before the date of the application under this section, this may be done by or against an individual be deemed in his insolvency to be a fraudulent preference.
  • Removal of manager, managing director or any other directors of the company;
  • Recovery of undue gains which are made by any manager, managing director or director during the period of his appointment as such and the manner of utilization of the recovery includes transfer to investor education and protection fund or repayment to identifiable victims;
  • The termination, setting aside or modification of any agreement, howsoever arrived at between the managing director and the company, any other manager or director, upon such terms and conditions as may, in the opinion of the tribunal, be just and equitable in the circumstances of the case;
  • The termination, setting aside or modification of an agreement between the company and any person other than those referred in clause c;
  • No such agreement shall be terminated, set aside or modified except after the due notice and after obtaining the consent of a party concerned;
  • The setting aside of any delivery of goods, transfer, payment, execution or any other act relating to property made or done by or against the company within a period of three months before the date of the application under this section which would, if made or done by or against an individual be deemed in his insolvency to be a fraudulent preference.
  • Removal of manager, managing director or any of the directors of the company;
  • Recovery of undue gains which are made by any manager, managing director or director during the period of his appointment as such and the manner of utilization of a recovery which includes the transfer of education and protection fund or repayment to identifiable victims;
  • The manner in which the manager or managing director of the company may be appointed subsequent to an order removes the existing manager or managing director of the company made under clause (h);
  • The appointment of such number of persons as a director who is required by the tribunal to report to the tribunal on such matters as the tribunal may direct;
  • Imposition of costs which may be deemed fit by the tribunal;
  • Any other matter for which in the opinion of the tribunal, it is just and equitable that provision has to be made.

mismanagement

A certified copy of the tribunal under sub-section (1) may be filed by the company with the registrar within a period of thirty days of the order of the tribunal.

The tribunal on the application of any party to the proceeding makes any interim order which it may think fit for regulating the conduct of the company’s affairs upon such terms and conditions as it appears to its be just and equitable.

The order of the tribunal under sub-section(1) makes any alteration in the memorandum or articles of the company, then, although any other provision in this act, the company would not have any power, except to particular extent, if any, permitted in the order, to make, without the leave of the tribunal, any alteration whatsoever is inconsistent with the order, either in the articles or in memorandum.

Subject to the provisions of sub-section (1), the alterations which are made by the order in the memorandum or articles of the company shall, in all respects may have the same effect as if they had been duly made by the company in accordance with the provisions of this act and the said provisions may apply accordingly in the articles or memorandum.

A certified copy of every order altering or giving leave to alter, a company’s articles or memorandum, May within thirty days after the making thereof, may be filed by the company with the registrar who shall register the same.

If a company contravenes the provisions of sub-section (5), the company would be punishable by a fine amount which should not be less than one lakh rupees but that may extend to twenty-five lakh rupees and every officer of the company who is in default will be punishable with the imprisonment for a terms that may extend to six months or with a fine which should not be less than twenty-five thousand rupees that may extend to one lakh rupees or with both.

Right to apply under section 241:

mismanagement

The following members of a company may have the right to apply under section 241, namely:-

In case the company having share capital which is not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less, or any member or members holds not less than one-tenth of the issued share capital of the company, subject to the condition that the applicant or applicants have or have paid all the calls and another sum due on his or her shares;

In case of a company not having a share capital, not less than one-fifth of the total number of its members

Provided that the tribunal, on an application which has been made to it’s in this behalf, waive all or any of the requirements specified in the clause (a) or clause (b), so as to enable the members to apply under section 241.

For the purposes of sub-section, any share or shares are held by two or more persons jointly, they may be counted only as one member.

Any member of a company who is entitled to make an application under sub-section(1), one or more of them having obtained the consent in writing of the rest which may make the application on behalf and for the benefit of all of them.

Class action:

mismanagement

Such number of depositors, members or any class of them, as the case may be, as are indicated in sub-section (2), may, if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interest of the company or its depositor or members, file the application before the tribunal on behalf of the members or depositors for seeking all or any of the following orders, namely:-

  • To prevent the company from committing an act which ultra vires the memorandum and articles of the company;
  • Declares the resolution by altering the memorandum or articles of a company as void if the resolution have been passed by suppression of material facts or obtained by misstatement to the members or depositors;
  • To restrain the director and its company from acting on such resolution;
  • To prevent the company from committing a breach of any provision of the company’s memorandum or articles;
  • To restrain the company from taking actions which is contrary to any resolution passed by the members;
  • To claim demand or compensation or damages any other suitable action from or against
    • The company or its directors for any unlawful, fraudulent or wrongful act or omission or conduct or any likely omission or act or any conduct on their part;
    • The auditor includes any audit firm of the company for any improper or misleading statement of particulars made in the audit report or for any wrongful or unlawful or fraudulent conduct; or
    • Any advisor or expert or consultant or any other person for any misleading or incorrect statement made to the company or for any unlawful, wrongful act or conduct or any likely at or conduct on his part;
  • To seek any other remedy as the tribunal that may deem fit.

The members or depositors seek any compensation or damages or demand any other suitable action from or against an audit firm the liability shall be of the firm as well as of each partner who was involved in making the misleading or improper statement of particulars in the audit report or who has acted in the unlawful or wrongful manner.

The requisite numbers of members are provided in sub-section (1) shall be under:

  • In case of a company having share capital, not less than one hundred members of a company or not less than such percentage of the total number of its members as may be prescribed, whichever is less or any member or members holding not less than particular percentage of the issued share capital of the company that may be prescribed, subjects to the condition that the applicant or applicants have or have paid all the calls and other sums due on his or her shares;
  • In case the company doesn’t have a share capital, not less than one-fifth of the total number of its members.

The requisite number of depositors provided in sub-section (1) should not be less than one hundred depositors or not less than such percentage of the total depositors as prescribe, whichever is less or any depositors to whom the company owes such percentage of total deposits of the company which may be prescribed.

Considering the application under sub-section (1), the tribunal may take into account, in particular-

  • Whether the depositor or the member is acting in good faith in making the application for seeking an order;
  • Any evidence before it as to the involvement of any person other than the officers of directors of the company on any of the matters provided in the clause (a) to (f) of sub-section (1);
  • The cause of action is one which the member or depositor could pursue his own right rather than through an order under this section;
  • Any evidence before it as to the views of depositors or members of the company who have no personal interest, direct and indirect in a matter being proceeded under this section;
  • The cause of action is an act or omission which is yet to occur, the act or omission could be, and in the circumstances would be likely to be-
    • Authorised by the company before it occurs or
    • Ratified by the company after it occurs
  • The cause of action is an act of omission that has already been occurred, whether the act or omission could be, the circumstances would be likely to be ratified by a company.

If an application which is filed under sub-section (1) is admitted, then the tribunal may have regard to the following namely:-

  • Public notice would be served on an admission of the application to all the depositors or members of the class in such a manner as may be prescribed;
  • All similar kind of applications prevalent in any jurisdiction that should be consolidated into a single application and the class members or depositors should be allowed to choose the lead applicant and in the event of depositors or members of the class are unable to come to a consensus. The tribunal may have the power to appoint a lead application who is in charge of the proceedings from the applicant’s side;
  • Two class of action of applications for the same cause of action would not be allowed;
  • The expenses or cost connected with the application for the class of activities that shall be defrayed by the company or any other person responsible for any oppressive act.

The order which has been passed by the tribunal shall be binding on the company and all of its depositors, members, and auditor includes audit firm or consultant or expert or advisor or any other person who is associated with the company.

The company which fails to comply with an order passed by the tribunal under this section would be punishable by a fine amount that shall not be less than five lakh rupees, here to be noted is, that may extend to twenty-five lakh and the duration will extend up to three years and with fine which would not be less than twenty-five thousand rupees that extend to one lakh rupees.

Any application which is filed before the tribunal is found to be frivolous or vexatious, it shall for the reason to be recorded in writing, rejects the application and makes an order that the applicant shall pay to the opposite party such cost, not exceeding one lakh rupees as may be specified in the order.

Nothing contained in this section would apply to a banking company.

As subject to the compliance of this section, it may be filed or any other action may be taken under this section by any person or group or persons or any other association of persons representing the persons affected by any act or omission specified in sub-section(1).

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